In comparison to its high value imports, Pakistan’s export basket comprises mainly products such as cotton, cloth, rice and other raw materials. In simple terms, these are sold for significantly less than the costs of energy imports, thereby skewing the trade deficit. Policy makers have also been lax in creating an environment that enables innovation and spurs the growth of high value and diverse industries that are internationally competitive. Doing so could have driven up the value of Pakistan’s exports vis-a-vis its imports and attracted greater foreign investment, which has lagged in recent times due to Pakistan’s fragile security environment and ensuing volatility of the economy.

Like many of its ill-conceived micro-economic policies, Pakistan’s recent economic vision appears to have been focused primarily on CPEC’s potential positive impacts while overlooking its short and long term negative consequences, both financially as well as politically. CPEC’s long term implications could be burgeoning loans on Pakistan even after its possible recovery from the economic crisis. It could also cripple the sovereignty of Pakistan’s newly elected government if the government were to become increasingly dependent on Chinese financing and loans.

Though on the one hand CPEC can be viewed as assisting Pakistan in its developmental needs, the huge financial commitments it has brought with it could be perceived as China exercising a ‘debt trap policy’.It is possible that should the IMF approve of a bail-out package, a large portion of that could somehow go towards repaying Pakistan’s loans from China. Becoming a client or vassal state of China is an argument that many analysts do not discount any more.

It will be a while before Pakistan’s economy is out of the woods. Support from the IMF and other global institutions will not suffice if Pakistan seeks a sustainable and stable economy that is able to compete with vibrant economies in South Asia like those of its neighbor, India, and a resurgent Bangladesh. To do that, Pakistan must address its fiscal crisis; avoid the looming debt trap; spur manufacturing and create an environment for innovation and technology driven industries to thrive. Only then will there be a revival of the industrial sector and the possibility of increased domestic and foreign investment in core sectors. While there is reasonable confidence within Pakistan that CPEC is a long-term value proposition and that Pakistan will not default on Chinese loans the way Sri Lanka did, the current economic crisis does not inspire much confidence unless critical economic reforms are instituted sooner than later.